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(Photo credit: Tax Credits)

Europe’s more than half century experience shows that, no matter hard you squeeze them, the rich cannot pay for a big government that guarantees all its citizens “positive rights” to income, employment, health, and retirement. Such an entitlement state – some call it a nanny state -- is funded primarily by repressive taxes on the middle class and the working poor. This conclusion is based on hard statistical facts that neither the right nor left dispute. America’s Left has kept this fact under wraps and out of sight of voters. It should have been the focus of the 2012 Republican campaign, but it was not.

Barack Obama has been busy creating and expanding an American entitlement state that he promises will be paid for by the rich. The middle class and poor need not worry about tax increases. For the time being, Obama can rely on lenders (and the Fed) to finance the annual $850 billion deficits projected under the most likely CBO scenario. But the day of reckoning will come. At some point, the “bond vigilantes” will refuse to finance the deficit at sustainable rates, and the government will be forced to cut entitlement spending or vastly raise taxes. When that time comes, then ex-President Obama expects the entitlement mentality to be so deeply ingrained that the middle class and working poor will accept their higher taxes with little protest.

If we continue down the road to Obama’s Big Government, everyone watch their wallets. The taxman commeth, big time! Judging from Europe’s experience, we must dramatically raise income taxes on the middle class, triple social security taxes, introduce a 20 percent federal sales tax, and raise the gasoline tax by $4.00. These taxes are all regressive, which means they fall most heavily first on the poor and then on the middle class.

If you do not believe me, an influential member of the media elite (from the New York Times editorial board, no less), let this secret slip in a remarkably candid admission. (Note his article appeared after the election):

“The experience of many other developed countries suggests that paying for a government that could help the poor and the middle class cope in our brave new globalized world will require more money from the middle class itself….The United Statesalready has one of the most progressive tax systems in the developed world.….. Taxes on American households do more to redistribute resources and reduce inequality than the tax codes of most other rich nations…. Insisting on highly progressive taxes that draw most revenue from the rich may result in more inequality than if we relied on a flatter, more ‘regressive’ tax schedule to raise money from everybody (!!!) and pay for a government that could help every American family attain a decent standard of living.”

The Obama campaign ignored this rather important fact. He offered the voter instead an enticing fable of a European-style nanny state paid for by the rich, ignoring the fact (to cite the Times) that the U. S. already has the most progressive tax system. Obama can soak the rich a little more, but the extra revenue will be meager if anything at all.

Although the media and some moderate Republicans characterize the fiscal cliff as stubborn politicians not playing like well-behaved children, its outcome will set the tone for a momentous tug-of-war over Big Government versus Limited Government. Obama is invoking his presumed electoral mandate to tax the rich, emboldened Democrats insist on taking entitlement reforms (cuts) off the table, and cowed Republicans offer revenue enhancements in return for spending reductions. If the result is the loss of the Bush tax cuts and/or increased spending from currently high levels and no entitlement reform, it will become difficult to reverse the tide toward the nanny state.

With the federal government borrowing 30 to 40 cents of every dollar, we have what The Economist calls the “American schizophrenia” of “taxing itself like a small-government country, but spending like a big-government one.” America is in the process of making the momentous decision which government it wants.

If we opt for Obama’s Big Government solution, we must eventually find a way to pay for it – and Europe tells us we must raise taxes on the poor and middle class. If we want a Small Government solution, intrepid politicians must do the heavy lifting of cutting entitlement programs back to levels for which a progressive tax system can pay.

Europe’s welfare state began in the 1870s as Germany’s Iron Chancellor Bismarck dangled entitlements to lessen the lure of Marx’s Communist Manifesto. Europe has had a century and a half to find an optimal variant. Its main parties are to our left. They have made every effort to create a nanny state paid for by the rich and failed. Instead, it is paid for by the middle class and poor. A Big Government America will be no exception. Willy Sutton robbed banks because that is where the money is. The middle class pays for the big entitlement states because that is where the money is.

Our liberal Times writer admits that a Sozialstaat paid for by the rich would be too small to provide everyone with a decent standard of living. Only a big nanny state can do the job, and that means taxing regressively the poor and middle class. The U.S. Temporary Assistance for Needy Families -- “the most progressive program of cash benefits among 22 advanced countries” – has a budget that is only a tenth of Europe’s (as a percent of GDP). Yes, the program is progressive, but it should be ten times larger to assure people their universal rights. A small nanny state simply won’t do. We must scale up all our entitlement programs and find the means of paying for them.

Europe is now learning that, even with onerous middle-class taxation, it cannot afford its generous entitlements. As Europe is seeking ways out of this mess as we are jumping in.

Let’s go from the big picture to the basic facts of official OECD statistics:

Fact 1: The core countries of Europe (Austria, Belgium, France, Germany, Italy, Netherlands, and Spain) collect only one third of their revenue from progressive income, profits, and property taxes, while the U.S. collects almost sixty percent.

Fact 2: Europe collects almost two thirds (64 percent) of its revenues from regressive payroll and sales taxes versus 44 percent for the U.S. (The U.S. figure includes state and local sales taxes. Our federal sales taxes are trivial unlike Europe’s).

Fact 3: The top marginal income tax rates on Europe’s “rich” vary from 41 to 52 percent, while the top U.S. federal marginal tax rate is 38 percent (including the uncapped 2.9 percent Medicare deduction). Forty three states have an income tax which is not included in the 38 percent figure. Europe has a low share of income taxes despite high marginal tax rates at the top.

Fact 4: Europe’s top marginal tax rates kick in at middle-income levels (Belgium at $46,000, Netherlands at $72,000, and France at $92,000). Only in Germany does it register at an income level ($326,000) comparable to the United States ($379,000). Europe applies its highest marginal income tax rates to middle class incomes by U.S. standards. The European middle class pays marginal tax rates similar to the highest tax rates in the United States.

Fact 5: Europe’s social security tax rates average 43 percent for workers earning the average wage versus the United States’ current 14 percent (which includes the Medicare tax). Europe’s high regressive social security taxes make taxes on labor the largest source of revenue for Europe’s entitlement state.

Fact 6: Europe’s national value added tax averages 20.5 percent. Europe’s average fuel tax is $3.08 per gallon (not counting the VAT) versus the U.S.’s 18.4 cent federal excise tax on gasoline. Europe collects as much from regressive national sales and gasoline taxes as from progressive income and profit taxes.

Fact 7: If the top U.S. marginal tax rate is returned to the pre-Bush rates, top income earners will face a marginal rate of 42.5 percent, similar to that of top earners in Europe. This top rate does not include state income taxes.